It’s tough to make money in India, IATA says

Anis Syuhada

5 months ago

An Indian window cleaner stands on a beam overlooking Air India aircraft as they stand on the tarmac at Indira Gandhi International Airport in New Delhi on November 17, 2012. Air India used to dominate India's skies but its market share has shrunk sharply in the face of fierce competition from private carriers. Air India has been posting massive losses since 2007 following its merger with the country's other national carrier, Indian Airlines, due to big wage costs for a bloated workforce and high fuel and debt costs. AFP PHOTO/ Andrew Caballero-Reynolds (Photo credit should read Andrew Caballero-Reynolds/AFP/Getty Images)

By BLOOMBERG

NEW DELHI • India may be the world’s fastest growing major aviation market, but it is difficult for airlines to make money as excessive taxes and poor infrastructure choke the industry, according to the International Air Transport Association (IATA).

While jet fuel accounts for about 24% of a carrier’s average costs globally, it is 34% in India, making domestic airlines even more vulnerable when oil prices rise, Alexandre de Juniac, CEO of IATA, said in New Delhi yesterday. Federal and local levies of up to 30% add to the burden, he said.

“India’s regulatory and tax framework around fuel hits airlines serving this market even harder,” he said at a conference in New Delhi. “India is a particularly challenging place to do business.”

As rising income spurs an air-travel boom in the US$2.6 trillion (RM10.76 trillion) economy, about 10 carriers are vying for passengers taking to the skies for the first time in their lives, offering discounts that have pushed down fares so low that they can barely recover costs. A surge in crude oil prices and a weakening rupee have weighed on their operations.

Jet Airways India Ltd was the latest to signal financial distress, last month reporting its biggest quarterly loss since 2015 and revealing plans to cut its debt pile and raise funds to meet liquidity needs.

Indian carriers are preparing to take delivery of about 1,000 aircraft over the next eight years to meet demand in a market where the number of passengers travelling to, from and within the South Asian country is set to triple to 500 million by 2037.

While the scope of the market is impressive, the costly operating environment is bogging down the carriers, de Juniac said.

Losses at local airlines will balloon to as much as US$1.9 billion in the year ending March 2019, and the companies need to raise more than US$3 billion in capital in the near term, according to Sydney-based consultancy CAPA Centre for Aviation.

“We understand that governments need tax revenue,” de Juniac said, suggesting an overhaul of the jet-fuel taxes, transparency in fuel pricing and cutting of excise duty.

“But the economy needs financially sustainable air connectivity. If you kill the goose that lays golden eggs, there are no more eggs.”

While IndiGo, a low-cost airline operated by InterGlobe Aviation Ltd is one of the few profitable carriers, and state-owned Air India has survived on government bail-outs, others haven’t been so lucky.